Why the rich need to budget as well
It might seem strange that people on tight budgets and those with more money to spare both equally need to budget.
But having a household budget – knowing how much income is coming in and where it is being spent – is an essential part of healthy finances. It is a healthy financial habit for people, irrespective of how much they earn.
In fact, studies suggest that people who pay close attention to their finances can end up better off than higher earners with a less careful eye.
ING senior economist Ian Bright tells a personal tale in the video Why the rich need to budget as well about how he suddenly ended up without a job – and without a firm idea of his household spending. Bright learned about the importance of having a budget and shared the valuable lesson.
What’s your lifestyle?
The eZonomics slideshow How to … make a basic budget gives a step-by-step guide on how to evaluate income and spending. It details the need to look for excessive splurges and to make choices about what to buy and how to allocate discretionary income.
Benefits for low wage earners might include exposing areas where they can make savings, allowing them to divert income elsewhere.
High wage earners might identify whether they have slipped into the expensive trap of having excessive “lifestyle inflation” – the tendency to spend increased income rather than save and invest a portion of it. There are many stories of ultra-rich who shun lifestyle inflation, such as billionaire investor Warren Buffett living for more than 50 years in the Omaha home he bought for $31,500.